Phil Commercial Int Bank vs CA, Ford Philippines and Citibank G.R. No.

121413 January 29, Commented [TJ1]: PCIB for brevity

2001
Ford Philippines vs CA, Citibank and PCIB G.R. No. 121479 January 29, 2001
Ford Philippines vs Citibank, PCIB and CA G.R. No. 128604 January 29, 2001

Action: Petitions for review on certiorari on the original actions filed by Ford Philippines to recover
from drawee bank, Citibank and collecting bank, PCIBank, the value of several crossed checks Commented [TJ2]: Crossed which contain “For Payee’s
payable to the Commissioner of Internal Revenue Account Only”

Facts: G.R. No. 121413 and G.R. No. 121479 January 29, 2001

On October 19, 1977, the Ford drew and issued its Citibank Check No. SN04867 in the amount of
P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of plaintiff’s
percentage or manufacturer's sales taxes for the third quarter of 1977. The aforesaid check was
deposited with the defendant IBAA (now PCIBank) and was subsequently cleared at the Central
Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA
as collecting or depository bank. The proceeds of the same Citibank check of the plaintiff was
never paid to or received by the Commissioner of Internal Revenue. As a consequence, upon
demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to
make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers' sales
taxes for the third quarter of 1977 and that said second payment of plaintiff in the amount of
P4,746,114.41 was duly received by the Bureau of Internal Revenue.

On December 19, 1977, plaintiff's Citibank Check No. SN04867, together with the Revenue Tax
Receipt No. 18747002, was deposited with defendant IBAA, through its Ermita Branch. The latter
accepted the check and sent it to the Central Clearing House for clearing on the same day, with
the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed."
Thereafter, defendant IBAA presented the check for payment to defendant Citibank on same date,
December 19, 1977, and the latter paid the face value of the check in the amount of
P4,746,114.41. Consequently, the amount of P4,746,114.41 was debited in plaintiff's account with
the defendant Citibank and the check was returned to the plaintiff.

An investigation by the National Bureau of Investigation (NBI) revealed that Citibank Check No.
SN04867 was recalled by Godofredo Rivera, the General Ledger Accountant of Ford. He
purportedly needed to hold back the check because there was an error in the computation of the
tax due to the Bureau of Internal Revenue (BIR). With Rivera's instruction, PCIBank replaced the
check with two of its own Manager's Checks (MCs). Alleged members of a syndicate later
deposited the two MCs with the Pacific Banking Corporation.
I
G.R. No. 128604 January 29, 2001

Ford drew Citibank Check No. SN10597 on July 19, 1978 in the amount of P5,851,706.37
representing the percentage tax due for the second quarter of 1978 payable to the Commissioner
of Internal Revenue. A BIR Revenue Tax Receipt No. 28645385 was issued for the said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN16508 in the amount of
P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979 and
payable to the Commissioner of Internal Revenue. Again, a BIR Revenue Tax Receipt No.
A1697160 was issued for the said purpose. Both checks were "crossed checks" and contain two
diagonal lines on its upper corner between, which were written the words "payable to the payee's
account only." The checks never reached the payee, CIR. Thus, in a letter dated February 28,
1980, the BIR, Region 4B, demanded for the said tax payments the corresponding periods
abovementioned.

The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on the
modus operandi of the syndicate, as follows:

"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger
Accountant. As such, he prepared the plaintiff's check Citibank Check No. Sn10597 for payment to
the BIR. Instead, however, of delivering the same of the payee, he passed on the check to a co-
conspirator named Remberto Castro who was a pro-manager of the San Andres Branch of PCIB.
In connivance with one Winston Dulay, Castro himself subsequently opened a Checking Account
in the name of a fictitious person denominated as 'Reynaldo Reyes' in the Meralco Branch of
PCIBank where Dulay works as Assistant Manager. After an initial deposit of P100.00 to validate
the account, Castro deposited a worthless Bank of America Check in exactly the same amount as
the Citibank Check No. Sn10597; while this worthless check was coursed through PCIB's main
office enroute to the Central Bank for clearing, replaced this worthless check with Citibank Check
No. Sn10597 and accordingly tampered the accompanying documents to cover the replacement.
As a result, Citibank Check No. Sn10597 was cleared by defendant CITIBANK, and the fictitious
deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch with the total
amount of the Citibank Check No. Sn10597. The same method was again utilized by the syndicate
in profiting from Citibank
Check No. SN16508 which was subsequently pilfered by Alexis Marindo, Rivera's Assistant at
FORD.”

Issue: Whether Citibank and PCIBank were negligent in the fraudulent encashment the various
checks issued by Ford Philippines thus rendering them liable for the loss incurred by Ford

Ruling: WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA G.R.
CV No. 25017 are AFFIRMED. PCIBank, know formerly as Insular Bank of Asia and America, is
declared solely responsible for the loss of the proceeds of Citibank Check No SN 04867 in the
amount P4,746,
.41, which shall be paid together with six percent (6%) interest thereon to Ford Philippines Inc.
from the date when the original complaint was filed until said amount is fully paid.

However, the Decision and Resolution of the Court of Appeals in CA G.R. No. 28430 are
MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share the loss,
(concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling
P12,163,298.10) on a fifty-fifty
ratio, and each bank is ORDERED to pay Ford Philippines Inc. P6,081,649.05, with six percent
(6%) interest thereon, from the date the complaint was filed until full payment of said amount.

Costs against Philippine Commercial International Bank and Citibank N.A.

Ratio: Note that in these cases, the checks were drawn against the drawee bank, but the title of
the person negotiating the same was allegedly defective because the instrument was obtained by
fraud and unlawful means, and the proceeds of the checks were not remitted to the payee. It was
established that instead of paying the checks to the CIR, for the settlement of the appropriate
quarterly percentage taxes of Ford, the checks were diverted and encashed for the eventual
distribution among the members of the syndicate. As to the unlawful negotiation of the check the
applicable law is Section 55 of the Negotiable Instruments Law (NIL), which provides: "When title
defective The title of a person who negotiates an instrument is defective within the meaning of this
Act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear,
or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith
or under such circumstances as amount to a fraud." Pursuant to this provision, it is vital to show
that the negotiation is made by the perpetrator in breach of faith amounting to fraud. The person
negotiating the checks must have gone beyond the authority given by his principal. If the principal
could prove that there was no negligence in the performance of his duties, he may set up the
personal defense to escape liability and recover from other parties who. Though their own
negligence, allowed the commission of the crime.

There is a need to determine whether or not the action of Godofredo Rivera, Ford's General
Ledger Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of the loss or
damage. As defined, proximate cause is that which, in the natural and continuous sequence,
unbroken by any efficient, intervening cause produces the injury and without the result would not
have occurred. It appears that although the employees of Ford initiated the transactions
attributable to an organized syndicate, in our view, their actions were not the proximate cause of
encashing the checks payable to the CIR. The degree of Ford's negligence, if any, could not be
characterized as the proximate cause of the injury to the parties. The Board of Directors of Ford
did not confirm the request of Godofredo Rivera to recall Citibank Check No. SN04867. Rivera's
instruction to replace the said check with PCIBank's Manager's Check was not in the ordinary
course of business which could have prompted PCIBank to validate the same. As to the
preparation of Citibank Checks Nos. SN10597 and 16508, it was established that these checks
were made payable to the CIR. Both were crossed checks. These checks were apparently turned
around by Ford's employees, who were acting on their own personal capacity.

G.R. Nos. 121413 and 121479

PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of
PCIBank employees to verify whether his letter requesting for the replacement of the Citibank
Check No. SN04867 was duly authorized, showed lack of care and prudence required in the
circumstances. PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR. As
an agent of BIR, PCIBank is duty bound to consult its principal regarding the unwarranted
instructions given by the payor or its agent. As agent of the BIR (the payee of the check),
defendant IBAA (now PCIBank) should receive instructions only from its principal BIR and not from
any other person especially so when that person is not known to the defendant. It is very
imprudent on the part of the defendant IBAA to just rely on the alleged telephone call of the one
Godofredo Rivera and in his signature considering that the plaintiff is not a client of PCIBank.

Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned
checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS
GURANTEED should render PCIBank liable because it made it pass through the clearing house
and therefore Citibank had no other option but to pay it. Thus, Citibank had no other option but to
pay it. Since the questioned crossed check was deposited with PCIBank, which claimed to be a
depository/collecting bank of the BIR, it had the responsibility to make sure that the check in
question is deposited in Payee's account only. Indeed, the crossing of the check with the phrase
"Payee's Account Only," is a warning that the check should be deposited only in the account of the
CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that the check be deposited in
payee's account only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize
the check and to know its depositors before it could make the clearing indorsement "all prior
indorsements and/or lack of indorsement guaranteed".

G.R. No. 128604

As a general rule, a banking corporation is liable for the wrongful or tortuous acts and declarations
of its officers or agents within the course and scope of their employment. A bank will be held liable
for the negligence of its officers or agents when acting within the course and scope of their
employment. It may be liable for the tortuous acts of its officers even as regards that species of
tort of which malice is an essential element. In this case, we find a situation where the PCIBank
appears also to be the victim of the scheme hatched by a syndicate in which its own management
employees had particiapted. The pro-manager of San Andres Branch of PCIBank, Remberto
Castro, received Citibank Check Numbers SN10597 and 16508. He passed the checks to a
coconspirator, an Assistant Manager of PCIBank's Meralco Branch, who helped Castro open a
Checking account of a fictitious person named "Reynaldo Reyes." Castro deposited a worthless
Bank of America Check in exactly the same amount of Ford checks. The syndicate tampered with
the checks and succeeded in replacing the worthless checks and the eventual encashment of
Citibank Check Nos. SN 10597 and 16508. The PCIBank Pro-manager, Castro, and his co-
conspirator Assistant Manager apparently performed their activities using facilities in their official
capacity or authority but for their personal and private gain or benefit. A bank holding out its
officers and agents as worthy of confidence will not be permitted to profit by the frauds these
officers or agents were enabled to perpetrate in the apparent course of their employment; nor will
it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the
bank therefrom.

Citibank as the drawee bank owes to Ford an absolute and contractual duty to pay the proceeds of
the subject check only to the payee thereof, the CIR. Citing Section 6232 of the Negotiable
Instruments Law, Ford argues that by accepting the instrument, the acceptor, which is Citibank
engages that it will pay according to the tenor of its acceptance, and that it will pay only to the
payee, (the CIR), considering the fact that here the check was crossed with annotation "Payees
Account Only." As ruled by the Court of Appeals, Citibank must likewise answer for the damages
incurred by Ford on Citibank Checks Numbers SN 10597 and 16508, because of the contractual
relationship existing between the two. Citibank, as the drawee bank breached its contractual
obligation with Ford and such degree of culpability contributed to the damage caused to the latter.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the
amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the
record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear
any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been
duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and 16508
would have been discovered in time. For this reason, Citibank had indeed failed to perform what
was incumbent upon it, which is to ensure that the amount of the checks should be paid only to its
designated payee. The fact that the drawee bank did not discover the irregularity reasonably, in
our view, constitutes negligence in carrying out the bank's duty to its depositors.